Challenges before Modi government
by Ashok B Sharma on 09 Jun 2019 5 Comments

Major challenges await the second term of the Modi government. The country’s economy is not in good shape. Joblessness has reached a 45-year high at 7.8 per cent for urban areas and 5.3 per cent for rural areas. Though the government has dismissed comparison of data with previous years, saying it is a new matrix for estimation and cannot be compared with previous years, the seriousness of the problem cannot be denied.  Added to this are the recently released GDP figures that show slowdown in the economy. The inflation-adjusted GDP grew at 6.8 per cent in 2018-19 as against 7.2 per cent in the previous year. The figure of the last quarter of the current year shows that the slowdown persists. In the last quarter the economy grew at 5.8 per cent as compared to 6.6 per cent in the previous quarter in the current fiscal year.


National income data shows that gross value added (GVA), which is GDP minus taxes, grew at 5.7 per cent in the last quarter of the current fiscal year which is lower than 6.3 per cent of the last quarter and 7.9 per cent of the same quarter in the last year. In 2018-19, GVA grew at 6.6 per cent as against 6.9 per cent in the previous year. GVA is considered as more realistic in measuring the health of the economy.


Also the fourth quarter corporate results confirm a slowdown in the economy across all sectors. The problems of farmers still remain unresolved. Both domestic and foreign investments are not taking place at the pace needed.


India’s trade deficit has reached a record high of $176 billion in the current year despite  exports and imports growing at the same rate of about nine per cent. The state of world economy and trade is also not encouraging. There is a deadlock in the global trading body, World Trade Organisation (WTO). Rivalry persists amongst US, Russia and China.


The onus for remedying the situation falls mainly upon three newly appointed ministers – finance minister Nirmala Sitharaman, commerce and industry minister Piyush Goyal and foreign affairs minister Dr Subramanian  Jaishankar.


Jaishankar, a former foreign secretary and former ambassador to the US, China and Singapore, can help resolve the complex and dynamic global situation. The Trump Administration has recently announced that it would withdraw the Generalised System of Preferences (GSP) in trade practices given to India 30 years ago. Trump’s decision is based on what he called India’s inability to assure the US “that it will provide equitable and reasonable access to its markets”, keeping in view its policy of “America First”. India-US trade relationship had been strained for the past year, over what Washington calls unfair trade restrictions on sale of dairy products and medical equipment, as well as proposed Indian regulations on data localisation and e-commerce companies operating here.


US Special Representative for Iran, Brian Hook, said plainly that the US would sanction, without exception, any country that buys or has bought Iranian oil after the May 2 deadline. Though India has not brought Iranian oil since that date it has not said categorically that it would not purchase oil from Iran. Washington has said it would also bring sanctions under the Countering America’s Adversaries Through Sanctions Act, CAATSA, against India, if it goes ahead with its purchase of the S-400 Triumf missile shield from Russia. India plans to get its first Triumf system by October 2020 and the $5.5 billion contract will be completed by April 2023.


Similarly, the US Acting Secretary of Defense Patrick Shanahan made it clear that the US wants its partners to join in the ban on Chinese telecommunication company Huawei for its 5G technology. The US has further cautioned that it may cut intelligence sharing with countries that choose telecom companies the U.S. doesn’t trust. India has so far declined to ban Huawei from its process for 5G telecommunication network.


New Delhi has a strategic partnership and robust defence cooperation with the US. The Trump administration has supported India’s efforts to counter terrorism. It needs India’s support in counterbalancing China in Asia and in the Indo-Pacific. Jaishankar will have to navigate the US-China and US-Russia rivalry in the interests of the country. He also needs to work out a better relationship with Europe.


Prime Minister Modi and Jaishankar will be meeting US President Trump, Russian President Vladimir Putin and Chinese President Xi Jinping this month at the SCO summit in Bishkek on June 13-14 and G-20 summit in Osaka on June 28-29. Hopefully, something may be worked out.


Following Modi’s “Neighbourhood First” policy, this time leaders of BIMSTEC countries and Prime Minister of Mauritius Pravind Kumar Jugnauth and President of Kyrgyz Republic Sooronbay Jeenbekov, current chair of SCO, were invited for the swearing-in ceremony. The invited BIMSTEC leaders represent parts of South Asia and ASEAN as well. The Prime Minister of Mauritius represents the Indian Ocean on the western side. The chair of SCO represents the Central Asian neighbours. Modi’s “Neighbourhood First” policy is to secure the region and play safe in the rivalry between three major powers – US, Russia and China.


Overall, Modi’s second term is an opportunity to turn around the economy, the onus for which falls on the finance minister and commerce and industry minister. The foreign affairs minister is pivotal in navigating the complex and dynamic world, particularly the rivalries between US, Russia and China. The three must work in close cooperation in positioning India not only as an economic powerhouse but also as a strategic power centre.  


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